Gold futures rallied Friday, prompting prices to turn higher for the week, as U.S. and U.K. airstrikes in Yemen, in response to Houthi rebel attacks on ships in the Red Sea, raised the precious metal’s appeal as a safe-haven investment.
The U.S.-U.K. strikes on Yemen “clearly raise the threat of wider tensions, if not [a] major power conflict,” Adrian Ash, director of research at BullionVault, told MarketWatch.
In Friday dealings, gold for February delivery GCG24, +1.93% GC00, +1.93% climbed $ 38, or 1.9%, to $ 2,057.20 an ounce on Comex. Most-active gold futures haven’t tallied a daily dollar and percentage climb that big since Dec. 14, FactSet data show.
The U.S. and British forces carried out joint strikes Thursday on targets in Yemen used by Iran-backed Houthis, in response to the rebels attacks on shipping vessels in the Red Sea.
“Risk aversion is keen late this week” following those strikes, with gold pries sparking sharply higher, said Jim Wyckoff, senior analyst at Kitco.com.
Still, with global stock markets also rising alongside bond prices Friday, gold looks to be taking its cue from weak U.S. and Chinese inflation data, rather than from the latest geopolitical violence, said Ash.
China’s producer price index fell 2.7% in December, down for a 15th straight month. In the U.S., the producer price index fell by 0.1% last month for a third consecutive month.
Gold prices had fallen to four-week lows Thursday after data that day revealed a 0.3% rise in the U.S. consumer consumer price index in December, the biggest gain in three months. But prices have now rallied towards a record-high weekly finish on the PPI miss, said Ash. “That shows just how sensitive gold remains to Fed rate-cut expectations.”
“Despite oil prices jumping on the U.S.-led action in the Red Sea, bond traders continue to see inflationary pressures easing further in 2024,” he said.
The yield on the 10-year Treasury BX:TMUBMUSD10Y traded at 3.951%, down from 2.974% on Thursday. Bond prices and bond yields are inversely related.
“While gold is rising to price that in, it looks as vulnerable as stocks and bonds to a turnaround in sentiment,” said Ash.
He said fed funds futures are now priced for six rate cuts 2024, “twice as many as the Fed itself has predicted.”
Given that, “expect more push-back from Fed officials, plus more volatility in gold and other rate-sensitive markets, ahead of the Fed’s January meeting,” he said. The next meeting is scheduled for Jan. 30 to 31.